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Brazil: Food Industry Boom

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A growing consumer class in Brazil is spurring strong growth for multinational food companies.


BY MARCEL MOTTA

Euromonitor International

 

The packaged food market in Brazil was valued at R$176 billion (US$105 billion) in 2010, having grown by 44 percent since 2005. As a result, it jumped from eighth to fifth place globally in retail value, ahead of countries like France, Italy and the UK. The food industry in Brazil is large, dynamic and very competitive. The country’s agricultural capacity is enormous. It is able to supply raw materials and ingredients with international quality at affordable prices to a fast-growing food industry. Manufacturers are able to tap into a domestic consumer base that accounts for half of all consumers in South America and this alone makes Brazil a place of choice as a hub for Latin America and an excellent platform for new product development in the region. 

 

Multinational packaged foods players like Nestlé, Unilever, Bunge International and Danone, to name a few, view Brazil as an important groundwork for top- and bottom-line growth. However, there is a great variation in terms of length of presence among these multinationals in the country. Companies like Nestlé, Danone and Kraft are long established in Brazil, being in the country for over half a century, whereas companies like Hershey and General Mills entered it more recently, in comparison. Not surprisingly, there is an almost perfect positive correlation between length of presence in the country and company share of the market, as Brazilian consumers seem to trust and be loyal to brands that are considered part of their life.

 

On the side of the domestic companies, packaged food is very fragmented. However, over the past couple of years, the packaged food market in Brazil has seen important mergers and acquisitions, such as those involving Sadia and Perdigão, Marfrig and Seara, General Mills and Laticínios Condessa, as well as JBS and Bertin. This movement has been strengthening Brazilian players in several packaged foods sectors, such as ready meals, chilled processed foods and frozen processed foods, from which we should expect increased pressure on retailers, and consolidation of distribution for categories involved.

 

Packaged food in Brazil is set to continue to grow over the next five years, as the lower consumer base enlarges. In addition, on the supply side, Euromonitor expects that agriculture production will continue to grow and develop. On the demand side, an important aspect to keep in mind in order to succeed in packaged foods in the country is the perception that in Brazil there are two very distinct consumer bases: one small, wealthy base of consumers with purchasing power similar to those in the United States, and a larger base, with much lower purchasing power, composed of the majority of consumers in the country.

 

Multinationals operating in the country have shown great interest in focusing on the lower-income C and D mass consumers in recent years. Branded items from developed countries are expected to continue to be brought to Brazil with a focus on the small high-income consumer base. Nevertheless, we have picked up evidence that multinational packaged food companies have invested, and will continue to do so, in items more fit and priced to compete in the mass consumer base dominated by the small local players.

 

Packaged food presents a muscular long-term opening due to the sheer size of the consumer base in Brazil. Notwithstanding this great potential, challenges for late-entry companies are everywhere and market testing has almost always led to negative results. A number of companies with leading brands in the developed markets found it very difficult to establish their renowned packaged food products in Brazil and compete with long established multinationals and smaller local companies. Established multinationals have an edge in the market because of their long-standing presence in the country and are readily recognised and trusted by consumers. Smaller local companies have the price advantage. Once in the country, continuous investments and patience are paramount to gain consumers, expand value share and build long-term profits.

 

Events such as the 2014 FIFA World Cup and the 2016 Olympics should bring even more investments to the country. The emerging consumers, both from the so-called “new middle class” of C social economic strata consumers, as well as those crossing over the poverty lines from the D and E classes into C, are expected to contribute significantly to growing demand for packaged food products over the next few years. As more consumers are being brought into the consumer markets, Brazil is each step further to realizing its full economic potential, which will pave the way for the for industry to continue on its positive trajectory.

 

 

Marcel Motta is Brazil Research Manager at Euromonitor International. This article was written for Latin Business Chronicle.

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